Treasury announces plans for first Citigroup sale

Tuesday

Apr 27, 2010 at 12:01 AM

The Associated Press

The Associated Press

WASHINGTON — The Treasury Department said Monday that it plans to sell up to 1.5 billion shares of Citigroup stock, its latest move to unwind the support it provided big banks during the financial crisis.

The sales, which amount to about 20 percent of the government's ownership stake, was expected to begin as soon as Monday, according to a person familiar with the transaction. The person wasn't authorized to speak on the record about the deal.

The government received about 7.7 billion shares, or a 27 percent ownership stake, as compensation for the massive support it extended to the bank during the height of the financial crisis in late 2008. Treasury said last month that it would soon begin selling its Citigroup stock and planned to complete the sales this year.

The sales should earn a tidy profit for the government, which purchased the common stock in the summer of 2009 at a share price of $3.25. Citigroup shares fell 19 cents, or 3.9 percent, to $4.67 in midday trading Monday.

If the government sold all its 7.7 billion shares at $4.70, it would receive about $36.2 billion in proceeds. That's $11.2 billion above the $25 billion it paid for the shares.

By selling its stock over time, the Treasury is taking a risk that Citigroup's share price could dip below $3.25, resulting in a loss on some of the sales, said Linus Wilson, assistant professor of finance at the University of Louisiana at Lafayette.

But "there's a very good chance" that Treasury will be able to sell between 50 million and 100 million shares a day "and exit with a profit," Wilson said.

In a statement Monday, Treasury said it planned to proceed with the sales of the Citigroup common stock "in an orderly fashion under a pre-arranged trading plan with Morgan Stanley, Treasury's sales agent."

In a separate filing with the Securities and Exchange Commission, the company said it would report quarterly on the number of shares sold.

Treasury said Morgan Stanley had the authority to make the initial sales "under certain parameters" and that Treasury expected to give the company the authority to sell additional shares after the initial 1.5 billion shares had been sold.

The announcement comes after other large banks such as Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo have repaid the money Treasury provided them under the $700 billion Troubled Asset Relief Program, or TARP.

"We're putting TARP out of its misery," Treasury Secretary Timothy Geithner said on CNN's "Fareed Zakaria GPS" program Sunday.

Citi, one of the hardest-hit banks during the financial crisis and Great Recession, received a total of $45 billion in bailout money. That was one of the largest rescues under the TARP.

Of the $45 billion, $25 billion was converted to a government ownership stake in Citi last summer and the bank repaid the other $20 billion in December.

Geithner estimated last week that the government's losses from the bailouts of the banks, the auto companies, the insurance company AIG, and mortgage giants Fannie Mae and Freddie Mac would be about $87 billion. That's much lower than a year ago, when Treasury estimated the ultimate cost would be closer to $500 billion, Geithner said in a letter to congressional leaders.